FRANKFURT -- The turmoil that nearly cost Volkswagen Group CEO Martin Winterkorn his job last week is rooted in the company's problems in the U.S., where the VW brand has made precious little progress since Winterkorn took charge eight years ago.
Supervisory board head Ferdinand Piech, whose term expires in 2017, sparked a succession crisis at VW by telling a German magazine that he had "distanced" himself from Winterkorn, his erstwhile pupil and presumed successor.
A source close to the carmaker's supervisory board said the 78-year-old Piech is dismayed by the performance of the VW brand, particularly in the U.S. Analysts agree that a failure to penetrate the market despite heavy investments plays a central role in the dispute.
The company spent about $1 billion to build the factory in Tennessee where it produces an affordable Passat sedan designed for U.S. customers. But the VW brand's U.S. market share in the first quarter fell to 2 percent, a level not seen since 2009, despite added tailwinds from the recent depreciation of the euro against the dollar.
"That was precisely the core of Winterkorn's strategy ... but the results of VW's high investments are sobering," wrote Ferdinand Dudenhoeffer, director of the Center of Automotive Research at the University of Duisburg-Essen, in a research note.
When Winterkorn took over, the VW brand's U.S. share was 1.4 percent.
VW insiders blame stale Eurocentric design, a lack of crossovers big enough to appeal to U.S. consumers and a low priority in Wolfsburg corporate headquarters as reasons for the poor performance in the U.S.
Dudenhoeffer wrote: "Piech recognizes that there are no signs for a change in the trend. And it is that much more depressing when you see that VW has even been losing market share to niche brands like Subaru in the U.S. despite investing billions there."
Last month, Winterkorn admitted to complacency after the initial success of the U.S. Passat, saying his management team had become "careless and paid the price" for "resting too much on [our] laurels."
The source close to the supervisory board said Piech felt Winterkorn, 67, lacked vision, and feared the consequences should his successor remain another seven years, first as CEO until the end of 2016 and later as chairman.
Last year VW launched a host of measures to regain its foothold in the U.S. including the decisions to refresh models more frequently, shift more r&d to the country as well as build a long-wheelbase Tiguan in Mexico for export to the U.S.
Although Volkswagen Group threatens to supplant Toyota Motor Corp. as the world's largest automaker based on vehicle sales this year and its Audi and Porsche luxury brands continue to generate big profits, the group has a host of problems apart from the U.S.
VW brand's operating margin, just 2.5 percent last year, is far from the 2018 target of 6 percent.
Commercial truck subsidiaries Scania and MAN view each other more as rivals than as corporate siblings and have long stymied efforts to extract meaningful cost savings from working together.
No budget car is in sight despite years of efforts, and now VW has fallen one spot to No. 3 in Brazil, its fourth-largest market, behind Fiat and General Motors.
Winterkorn survived his most difficult ordeal as VW Group CEO, winning the backing from key board directors on Friday to stay on as boss despite his mentor and chairman's sudden lack of confidence.
But in a crisis meeting of the board's central steering committee on Thursday, Winterkorn emerged seemingly as the outright winner.
He now has the committee's backing for a contract extension when the full board meets in February to discuss the issue.
"He has the full support of the Committee," the six-member body said in a statement on Friday, calling him the "best possible" CEO.
But analysts argue that the crisis is far from over and suggest Piech may have made a tactical retreat to bide time as he works behind the scenes to forge a consensus.
"There are only losers," said UBS auto analyst Philippe Houchois. "Winterkorn stays on, the company buys short-term stability and avoids unnecessary turmoil, but no one is fully secure."
Nord LB's Frank Schwope agreed: "It's only a temporary defeat for Piech, and this statement is in a sense only valid for today. Come February the world may look entirely different."
The proposal to extend Winterkorn's contract may not even materialize in the end, they warn.
"A lot of things can happen in between and Winterkorn will certainly be looking over his shoulder," Houchois said.
"It's unlikely the situation is totally settled."